House of Commons Hansard #151 of the 39th Parliament, 1st Session. (The original version is on Parliament's site.) The word of the day was companies.

Topics

Opposition Motion—FinanceBusiness of SupplyGovernment Orders

10:30 a.m.

Some hon. members

Agreed.

Opposition Motion—FinanceBusiness of SupplyGovernment Orders

10:30 a.m.

NDP

The Deputy Speaker NDP Bill Blaikie

Is there unanimous consent to adopt the motion?

Opposition Motion—FinanceBusiness of SupplyGovernment Orders

10:30 a.m.

Some hon. members

Agreed.

Opposition Motion—FinanceBusiness of SupplyGovernment Orders

10:30 a.m.

NDP

The Deputy Speaker NDP Bill Blaikie

(Motion agreed to)

Opposition Motion—FinanceBusiness of SupplyGovernment Orders

10:30 a.m.

Liberal

John McCallum Liberal Markham—Unionville, ON

Mr. Speaker, as I have said in the House before, it is abundantly clear that on this issue the Minister of Finance is entirely out of his depth.

Having said that, I would like to start on a positive note.

The Liberal Party, especially now that we have a new leader, would like to present some solutions. It is true that we attack the government when it does something stupid—which happens fairly often. But, at the same time, we want to offer Canadians different solutions.

First, I would like to elaborate on the Liberal thinking on the matter of deductibility. In my opinion, our thinking is similar to the comments by my Bloc colleague.

Let me outline the essence of our proposal. First, on April 16 the leader said in no uncertain terms that the government must scrap its policy. A few days later I, as finance critic, said the government must launch a major consultation. Today the leader has made it clear that the slower implementation of a policy that is bad does not thereby make it good, so that is an unacceptable proposal.

Our proposal consists of the following five points.

First, appoint a task force comprised of respected tax experts, business people and economists. Economists are sometimes useful.

Second, the mandate of the task force would be to review Canadian international tax policy in order to both nurture a Canadian advantage for our companies rather than create a disadvantage, as is currently proposed by the government, and also to tighten up the system where appropriate.

Third, the task force would review Canada's international tax treaties that have been negotiated with some 90 countries with a view to ensuring that the treaty partners are living up to the original policy expectations. In cases where this is not the case, for example, the emergence of preferential systems or a lack of transparency, the task force would recommend appropriate action.

In other words, if there are cases where low tax jurisdictions are behaving in ways that are abusive or inappropriate, then we would review our relationship with those countries. In line with the recommendations of this panel of experts, the government would receive recommendations to take appropriate action.

Fourth, the task force would review such issues as debt dumping and double dipping, and make recommendations designed to both sustain the Canadian advantage and protect the tax base.

Fifth and finally, the task force would review all other areas that it deemed relevant to its mandate.

I think this is a rational, responsible approach to a complex issue. It would take some time. These issues are complex, but it would lead Canada to have a modified reformed international tax policy which both nurtures the Canadian advantage, promotes our own companies, thereby creating jobs in this country, and also takes measures to address any abuses that there might be in the current system.

What a contrast between this rational policy which we are proposing and the chaotic, day by day changing of positions, to the point where the whole world is confused, that we have seen emanating from the Minister of Finance. He has received a barrage of criticism from all experts. I do not know of one expert who is supporting the government on this policy.

I am sure the parliamentary secretary will have searched very hard to find such an expert. When she has one, she can quote one, but might I just say that even Jack Mintz, the man whom the minister loves to quote and who was the author of the 1997 report that he uses to justify this, has totally abandoned ship.

The co-author of the Mintz report, Allan Lanthier, is the one our leader quoted as saying this is the worse policy to come out of Ottawa in 35 years.

Terry Corcoran, another favourite of the Finance Minister, just today in this morning's National Post, came out with an article saying that this was a bad policy.

I will just give you one quote from the CEO of Alcan on April 27, 2007 where he said:

[This policy] would adversely affect our profitability. It would result in less taxes paid in Canada and would make us a weaker company, more vulnerable for someone to buy us.

Prophetic words, Mr. Speaker.

Why is it important to have head offices in this country? It is important for jobs. Let me give two examples as to why head offices are extremely important for good jobs, for well paying jobs, that were so important for Canada in the past and will be into the future.

The first example, which I have mentioned before in the House, is my own father, who worked for over 20 years for Alcan in Montreal, in precisely the kind of job that would not have existed had Alcan in those days been owned by a foreign company like Alcoa. He is no longer there, but hundreds and thousands like him are, and whatever the assurances of the foreign buyer may be in the short term, we can be sure that those jobs will leave Montreal, those jobs which are so vital to our city centres, big cities and small cities across the country. They will wither away and leave this country.

A second example, slightly less personal than my father but personal enough, comes from my own riding, where a Canadian-owned company called ATI Technologies last year was sold to an American company called AMD, which is based in San José. Guess what happened? Four hundred jobs were cut as a consequence of this consolidation. How many jobs were lost in San José? Zero. How many jobs were lost in my riding of Markham? So far there are 130. That is what happens.

I am not opposed to all foreign investment necessarily. Much foreign investment brings benefit, but what is totally irrational and totally incompetent is to deliberately tilt the playing field against Canadian companies in favour of foreign companies to make it all that much easier for them to acquire our companies at huge cost in terms of valuable, high paying, head office jobs. That is why this policy is so misguided.

I have just about run out of time, but I have only touched the tip of the iceberg in terms of the economic incompetence of the government. I am not sure which is more incompetent between income trusts and interest deductibility. It is a close contest.

However, regarding income trusts, a sensible government would have taken a surgical approach, like our policy, and put a moratorium on new income trusts and a moderate tax, refundable to all but the foreigners, on income trust distributions.

What did the government do? It dropped a nuclear bomb on existing income trusts, thereby breaking a promise, thereby costing hard-working Canadians $25 billion, thereby depriving seniors who need their savings income to pay their bills from a valuable savings instrument, and thereby, and this is the connection with interest deductibility, weakening our once thriving energy trust sector which had been repatriating foreign capital. It has instead caused that depressed sector now to be prey to foreigners coming in to acquire them, which is precisely what is happening.

Another thing that is entirely illogical and stupid about the government's policy is that it claims it wants to get more tax revenue, but guess what? The unit holders of those trusts used to pay lots and lots of tax. Those foreign companies buying our income trusts will now pay no tax at all.

This is an unfair policy because it costs people who trusted the Prime Minister $25 billion. It deprives Canadians of access to income trusts while giving that access only to the fat cat private equity buyers in the United States.

Fairness has become unfairness. “Advantage Canada” has become disadvantage Canada. That is why I urge the government to come to its sense and not only adopt the Liberal proposal on interest deductibility but once it concedes one thing, it is easier to concede the next. It should come to its senses the second time and adopt the Liberal policies on income trusts.

Opposition Motion—FinanceBusiness of SupplyGovernment Orders

10:40 a.m.

Conservative

Ken Epp Conservative Edmonton—Sherwood Park, AB

Mr. Speaker, one of the things that the orator here just said was that he wanted to know of some experts anywhere who are knowledgeable and who support our policies. I would like to read a few quotes that I happen to have here. Here is one: “The [tax] system works only when all Canadians are paying their fair share”. Who said that? It was the member for Markham—Unionville, the one who just spoke.

Here is another one: “I am committed to ensuring a level playing field for all Canadians, and that is why I take the issue of tax havens seriously”. Who said that? It was the member for Markham—Unionville.

Here is another one: “Our tax system relies fundamentally on voluntary compliance...One of the reasons people may become less willing [to pay taxes] is if they see others getting away with not paying their fair share”. Who said that? It was the member for Markham—Unionville.

Just three days ago he said on the CBC that the finance minister said that we should go after abuses by tax havens and double-dipping. He agreed. He welcomed the finance minister going after abuses like tax havens and double-dipping. That is the member for Markham—Unionville. What other experts would he like to hear besides that?

Opposition Motion—FinanceBusiness of SupplyGovernment Orders

10:40 a.m.

Liberal

John McCallum Liberal Markham—Unionville, ON

Mr. Speaker, if the only expert he can find is me, I rest my case. I am a little biased on the subject. I am a little partisan, parti pris, even though I acknowledge some expertise on the subject, and I thank the hon. member for that compliment.

The second point I would like to make is that when he says I am contradicting myself, because we want to go after tax havens or tax fairness, he is totally wrong. Did he not hear me read the five-point plan to create a task force whose explicit purpose is to go after abusive tax havens and abusive unfair behaviour by people who would cheat the system? That is exactly what I said.

The only difference is that we can walk and chew gum at the same time. We can go both go after abuses and preserve the competitiveness of our economy. That government is so stupid it can only do one thing at a time: go after the abuses and destroy our companies. That is unacceptable to Canadians.

Opposition Motion—FinanceBusiness of SupplyGovernment Orders

10:40 a.m.

Bloc

Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

Mr. Speaker, I listened to my colleague's speech with interest, but I have a problem with it because there is a great divergence between the text of the motion and the plan of action.

The motion denounces the non-deductibility of interest but provides no details or nuances. This is also the case for income trusts. In this regard, we know very well that the main problem is that the Conservatives changed their minds, although they had promised to not touch income trusts. The substance of the issue is another matter.

Is the motion not superseded today by the action plan mentioned by the member? Would it not be more pertinent to completely rewrite it, to present it so it would be acceptable? In our opinion—and we had said this mainly with regard to family trusts—in its present form the proposal submitted by the Liberals is definitely not acceptable.

Opposition Motion—FinanceBusiness of SupplyGovernment Orders

10:40 a.m.

Liberal

John McCallum Liberal Markham—Unionville, ON

Mr. Speaker, I thank my colleague for his comments. Next to our leader's speech, his comments have been the most constructive of anything we have heard from the government.

In my opinion, what my leader and I have said about our proposal is in line with the motion. This motion clearly states that the government should withdraw its interest non-deductibility proposal, because it is completely unacceptable.

Today, we have proposed an alternative plan, along with a task force that would make recommendations to help us be competitive—really competitive—and still avoid tax abuse. I do not believe that there is a contradiction between, on the one hand, condemning a policy that is quite unacceptable and, on the other hand, proposing another policy or process that would lead us to a good solution.

Opposition Motion—FinanceBusiness of SupplyGovernment Orders

10:45 a.m.

Calgary Nose Hill Alberta

Conservative

Diane Ablonczy ConservativeParliamentary Secretary to the Minister of Finance

Mr. Speaker, I welcome the opportunity to help Canadians understand what all this rhetoric is about income trusts, interest deductibility and head offices in Canada. Stripped of all its rhetoric and nasty remarks about people in the government, what the Liberals are essentially saying is they want to have some businesses in Canada paying either no tax or significantly less tax than other businesses. They want to subsidize some businesses as opposed to others. They also want to have businesses to have two tax deductions for only one expense. Then they say, if this does not happen, that somehow dire consequences will flow to Canada.

I know this makes kind of an interesting political argument and gets people worked up, but we have to look at the facts, and that is what I intend to do today.

Let us first of all talk about income trusts. At the present time income trusts pay no tax at all. We think that is a problem. We began to see this as a problem when huge sectors of our economy started to either move toward the no tax model, such as our telecommunications industry. Then we heard that leaders of the energy and banking sectors were moving in this direction to pay no tax, and we became quite alarmed, I have to admit that.

If our corporate sector is not paying taxes, then we lose significant support for the social programs about which all Canadians are very concerned. We need tax dollars from corporations to help pay for health care, education, to ensure the security of our country is strong, and the list goes on.

If corporations start moving to pay no tax or significantly less tax even, then what happens to these programs? The money would then have to come from ordinary individual Canadians. If corporate tax is not coming in, then that deficit has to be made up by ordinary Canadians. A lot of ordinary Canadians are on fixed incomes because they are pensioners, or they are no longer in the workforce. Even those in the workforce are already taxed to death.

We have made a move to ensure that businesses in the country continue to contribute to the social fabric of the country through their tax dollars. Shoot us for doing such a terrible thing, but the fact is that it had to be done. We cannot have the business and corporate sectors in the country not contributing to the social programs of which we are all so proud and which define the country. This move had huge support.

Some of the analysts in the media said, “When the Liberals were in power, they did not grapple with income trusts”. They say now that the Conservative finance minister has tackled a difficult issue that the Liberals could not muster the gumption to resolve.

The National Post said, “The income trust issue is settled....in other words. It's time to move on. Everyone else has gotten the message. Why haven't Liberals”.

The Toronto Star said that what the Liberal leader should do was rethink his stand on income trusts and make the tough choice the Conservative government did and that the member for Wascana was afraid to make. It said, “ Defending tax unfairness will not win him the next election”.

However, the Liberals are unable to realize that we cannot have the corporate sector in the country moving to pay no taxes, or even significantly less tax. It will not work. We have to have a level playing field with tax fairness to support the social fabric of our country.

I do not know why the Liberals cannot get that. The business sector gets that. Mr. D'Alessandro from Manulife Financial said, “I think it's the right thing. I agree with the minister's justification. Continuing on the path of income trusts would not be in the long-term interests of the country”.

The CEO of CI Financial Income Fund said, “It was inevitable this was going to happen. It had begun to pervert the whole of corporate Canada”.

I could quote so many. I do not have time.

Even the Liberals themselves supported what we did on income trusts. Sheila Copps said, “Reversing the income trust decision”, as we heard today the Liberals now want to do, “would also run afoul of espoused Liberal principles, by promoting a tax loophole for a select few, financed by the rest of us”.

Former Liberal finance minister John Manley said, “it was the right thing to do”. He said, “any day that good public policy triumphs is a good day”. The Liberal finance critic himself, when this policy was announced, said that it was absolutely the right thing to ensure tax fairness and to work for Canada's productivity.

I do not understand why the Liberals cannot see the logic. The only conclusion I have to reach is that they are mischievously and, I hate to say it, disingenuously pushing this rhetoric for purely political purposes, to try to paint the Conservative government, which had the courage to do what they did not, as somehow the bad guys. They are saying that they will not be as bad as that, that they will be friends of Canadians. That is not going to fool anybody, I hate to say in case the Liberals are under any illusions about it, because nobody buys it. People who know this area know that what we did was the right thing.

Jim Pattison, who lost a lot of money after the income trust decision, said, “I think it was the right thing to do. Fundamentally, it was the right thing for the country”. I could quote many more business people who believe that.

How about the seniors who were affected, those who the Liberals say were somehow harmed by this? The National Pensioners and Senior Citizens Federation, the United Senior Citizens of Ontario and the Small Investor Protection Association have requested criminal investigations into the “deceptive cash yields used in the marketing of income trusts”. They were supported by an opinion letter sent by forensic accountant Al Rosen, who says Canadians were repeatedly lied to by marketers of the so-called income yields that many trusts were supposedly generating.

The fact is there were problems with the whole scheme, the way some businesses organized their affairs, and we dealt with it. It was hard for us politically. Everyone knows that. We did not do this to win political points when we desperately needed them as a minority government. We did it because it was the right thing for Canada, for investors and for seniors. Because of that, we brought in income splitting for seniors. We also doubled the amount of the age credit so seniors could protect more of their pension incomes. We have done this in a way that is right for Canada, that gives a win to people on pensions and that is right for our whole system.

Let us talk about income interest deductibility. What the government wants to do is plug what we perceive to be a tax loophole where corporations are allowed two deductions for one interest expense. They can deduct it in Canada and in another country. We want to plug that loophole. We do not think corporations, even Canadian corporations, should be allowed two deductions for the same expense.

Why do we think that? Because somebody has to pay for that deduction. It is a subsidy and assistance to businesses. We are happy to assist business. As everyone knows, we have done a lot to assist business, and I hope to have time to talk about that. However, we do not think there should be two deductions for the same expense. We are moving to fix that.

In the budget we made it clear that we were going to address tax loopholes and tax havens that distorted the level playing field on which we all paid taxes. The government wants to decrease taxes for everybody. In fact, we have done that. This year and in the next two years our government will decrease taxes to individual Canadians by $37.8 billion. That is a lot of tax relief.

We have also reduced taxes to the corporate sector. However, we can only do that for everybody if we plug the loopholes and the unfair distortions that are in the system. We made that clear. We made it clear in the budget that we would set up a panel to study this situation. I quote from page 240 of the budget where it says:

The Minister of Finance will set up an advisory panel to examine the system over the next year to identify further improvements for consideration in Budget 2008

Now somehow the Liberals make this leap from trying to make our tax system fair to dire consequences for the Canadian economy. I have no doubt that they know better. The finance critic for the opposition knows better; he is an economist. Somehow, for political purposes, this doom and gloom is ringing through the halls of Parliament, simply and solely for partisan purposes.

I am a partisan too. I understand partisanship, but surely there has to be an element, a scintilla of responsibility in the way these arguments are put forward. Therefore, I want to reassure Canadians, in spite of the overblown, overheated partisan rhetoric they will hear from the Liberals today, that there is not the cause for worry that the Liberals would like to drum up.

I quote from the Institute for Competitiveness and Prosperity report. It says that from 1985 to 2006, Canadian global leaders have more than doubled from 33 to 72. It says:

—we are growing globally competitive Canadian firms at a rate that wildly exceeds the rate of foreign acquisition. Net, we simply are not being hollowed out. We are thickening up”.

I quote from the “Financial Post Crosbie: Mergers & Acquisitions in Canada” report. It says:

Canadian companies continued to exhibit a strong appetite for foreign companies, making 456 purchases valued at $70 billion, nearly quadruple the number of foreign acquisitions of domestic companies.

Don Drummond, the TD Bank Chief Economist, says, “the facts don't warrant the hysteria that the Canadian economy is being sold out”. Liberal hysteria simply is that and it is not warranted and Canadians should pay it no mind.

Statistics Canada released a report yesterday. It said,“The holdings of Canadian direct investment abroad amounted to $523.3 billion at the end of 2006, or 13.8% higher than at the end of 2005. Holdings of foreign direct investment in Canada hit $448.9 billion at the end of 2006, up 10.1% from the end of 2005”. It goes on to say, “At the end of last year, Canadians' foreign corporate holdings were worth $74 billion more than foreign corporate holdings here”

Yesterday, the KPMG analysis was released. It says, “there have been more Canadian acquisitions of foreign firms than foreign acquisitions of Canadian firms over each of the past two years”.

How does plugging a tax loophole that allows two deductions for one expense going to have any impact on this? The Liberals are trying to scaremonger and very irresponsibly.

The KPMG corporate finance partner says, “I don't know what all the fuss is about. Everybody is worrying about the hollowing out of corporate Canada”. Not everybody because Liberals are trying to raise it. He says, “there is still significant deal flow going both ways”.

Today, the Montreal Gazette says:

As for Canada's economy being "gutted," this notion is so foolish that it's hard to know where to begin ridiculing it....Just for convenience, let's start with some new facts that throw a bucket of cold water on the overheated rhetoric.

Statistics Canada yesterday updated the official data on foreign investment in Canada and Canadian investment in other countries. Guess what: Canadian investment abroad is worth well over half a trillion dollars, outweighing foreign investment in Canada by a cool $74 billion.

That is even after some huge foreign takeovers in Canadian firms last year. The Montreal Gazette continues to say:

What's more, the value of Canadian investment abroad has grown faster than foreign investment in Canada every single year for the past decade.

It is nonsense to suggest that any Canadian government would want to tamper with that or is tampering with that. We are not tampering with that. We are simply doing what the Liberals should have done, and were urged to do for many years, to plug the loopholes and tax havens that were distorting the Canadian tax system.

In fact, preventing the use of tax havens and double dipping is an issue that has been around for a long time. The Auditor General, the 1997 Mintz committee on business taxation, the House of Commons public accounts committee and the finance committee, all these bodies have raised these concerns about the use of tax havens and double-dipping. In fact, the Mintz committee recommended that the deduction we are dealing with in budget 2007 which the Liberals over there are hollering, screaming, ranting and raving and making dire croakings about, all of these bodies have said it needs to be dealt with.

Just because the Liberals do not have the courage to address these issues and make Canada's tax system fair is no reason for them to criticize a government with enough courage and vision to do it. We are going to continue to do it.

The Toronto Star said:

Although it makes no sense to allow companies to claim tax breaks against income on which they pay no tax...[the Liberal leader]...is turning his back on sound tax policy.

Did the Liberal leader listen? No. Here he is today again turning his back and sticking out his tongue at sound tax policies for cheap political partisanship. It is a shame because we are here to serve our country, not to engage in overblown political manoeuvring.

David Dodge, the Bank of Canada governor, said:

We should deal with the abuses....it's certainly something that the [finance] minister...ought to try to do.

Terence Corcoran of the Financial Post said:

--Canadian taxpayers are subsidizing borrowing to finance foreign operations that other countries can tax.

He asked, “Why would we do that?” That is a good question. Maybe the Liberals opposite could answer that. He said:

--why should Canada give up tax revenue of $2.8-million so that [a particular company] can pay $3.5-million to a government in Europe? Canada is subsidizing job creation in a European country and boosting its tax base.

We do not want to do that.

The Liberals need to be more responsible in this whole area. It is not going to help our system and our economy for that kind of cheap political posturing that is not rooted in facts or common sense.

Canada's new government has taken significant action since coming into office to improve the international competitiveness of Canadian businesses. I have a list of things that we have done. I do not have time to read it but I will tell Canadians that we are committed to making Canada absolutely shine, a world leader in competitiveness and productivity, in being a significant, huge, strong, vigorous player in the global economy. That is our goal. All the moves we have made are intended to further that goal.

We have taken some political criticism for it. We have taken some unjustified criticism in a partisan way from the Liberals. I will say that Canada's interest, Canada's future, Canada's wealth, Canada's place in the global marketplace is our goal, is in our hearts and is where we are going to be moving to make sure that Canada shines. Canadians can take that to the bank.

Opposition Motion—FinanceBusiness of SupplyGovernment Orders

11:05 a.m.

NDP

Judy Wasylycia-Leis NDP Winnipeg North, MB

Mr. Speaker, I rise on a point of order. This is a Liberal motion and there is only one Liberal in the House. I would like a quorum call.

Opposition Motion—FinanceBusiness of SupplyGovernment Orders

11:05 a.m.

NDP

The Deputy Speaker NDP Bill Blaikie

We are waiting for quorum. Call in the members.

And the bells having rung:

And the count having been taken:

Business of SupplyGovernment Orders

11:10 a.m.

NDP

The Deputy Speaker NDP Bill Blaikie

It appears that we now have quorum. We will revert to questions and comments.

Business of SupplyGovernment Orders

11:10 a.m.

NDP

Judy Wasylycia-Leis NDP Winnipeg North, MB

Mr. Speaker, I rise on a point of order.

As I was rising to ask for guidance in terms of calling a quorum, the member for Kings—Hants yelled out that I needed economic guidance. Prior to that, he had said in the House that I could not balance my chequebook.

I find these comments sexist, offensive and not acceptable in this House. I would ask for a complete withdrawal of such sexist language.

Business of SupplyGovernment Orders

11:10 a.m.

Liberal

Scott Brison Liberal Kings—Hants, NS

Mr. Speaker, I have no idea how the member would construe my comment that I do not believe she could balance her chequebook as being a sexist comment. I can tell her that my 78-year-old mother has been balancing her chequebook for a long time. In fact I believe my 78-year-old mother to be extremely economically competent.

The fact that I do not believe the hon. member to be economically competent has nothing to do with her gender. It simply has to do with her capacity. I would urge her to reconsider her assertion that somehow that has something to do with her gender, because in fact I know a lot of very economically competent women who have great capacity. In fact many of them are in the Liberal caucus.

Business of SupplyGovernment Orders

11:10 a.m.

NDP

The Deputy Speaker NDP Bill Blaikie

I think we will move on now. Questions and comments, the hon. member for Montmagny—L'Islet—Kamouraska—Rivière-du-Loup.

Business of SupplyGovernment Orders

11:10 a.m.

Bloc

Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

Mr. Speaker, I would like to come back to the remarks made by my colleague, the Parliamentary Secretary to the Minister of Finance.

I would like to tell her that, at the outset, in certain aspects, the Liberal motion seems to be very partisan. The government left itself open to that because many elements look like improvisation; for example, GST rebates for tourists. They found it necessary to adjust the program that had been announced. As for the income trust program, we can consider the decision to reverse the government’s position. The Conservatives had made a commitment not to change their position. I am not talking about the definitive solution but about the message that was sent. Many small investors in all of our communities had put their savings into these trusts and then found themselves in a difficult situation.

The latest measure concerns interest deductibility. In that respect, what is spelled out, word for word, in the budget needs to be clarified because the parliamentary secretary is right and the implementation bill for that part of the budget has not yet been tabled.

Can the parliamentary secretary assure us that the proposal that will be tabled will not have the effect of throwing the baby out with the bath water?

We must ensure there is nothing unnecessary and that the issue of deductibility is sufficiently specific so that the Canadian economy is not harmed in a significant way. Can the parliamentary secretary reassure us on that point in such a way as to rise above this very partisan debate that is sending very negative signals to the Canadian economy and even beyond Canada?

At the same time, the government must be very specific in assuring us that, in the end, the measures will be sufficiently focused to achieve the desired results and not the reverse of what was hoped for in the beginning.

Business of SupplyGovernment Orders

11:10 a.m.

Conservative

Diane Ablonczy Conservative Calgary Nose Hill, AB

Mr. Speaker, during my remarks I quoted from a number of experts. I know sometimes people do not believe politicians, but I quoted from a number of experts who say that stopping a tax loophole like double-dipping, a loophole which allows a company to make two deductions for a single expense, is the right thing to do. It is supported by experts. It was supported, as the member will know, by our own finance committee and the public accounts committee in the House of Commons. It was called for by the Auditor General. It was called for by the Jack Mintz panel, the Technical Committee on Business Taxation, and by many others.

It was called for because it is the right thing to do. It levels the playing field. It allows everyone to have lower taxes instead of having big tax subsidies, tax loopholes and tax havens for a few.

As the member will know, our government is committed to addressing other tax loopholes that are identified and other tax havens which distort our tax system. I am not saying that no one is going to make cries of pain when these things happen. We all know that does occur.

Our government is very sensitive to input from members of Parliament, such as my friend opposite, from the business community and from other experts. We want to make sure that when we move forward on these measures, as we have on the double-dipping, that we do so in the best way possible for our economy and for those affected. We will be doing that and are doing that.

These dire warnings that somehow this is going to cause huge economic problems for the country are simply not true. Many experts have said that as well. I hope my friend will be reassured by that.

Business of SupplyGovernment Orders

11:15 a.m.

Liberal

Alan Tonks Liberal York South—Weston, ON

Mr. Speaker, I am attracted to the statement that the parliamentary secretary made in terms of a level playing field. I am sure she would agree that a level playing field is one thing within the Canadian context and it is quite another thing within the global context.

Many of those same experts that the parliamentary secretary has cited in fact have also given the other side of the coin with respect to capital transfers. The situation being in source countries for capital investments in Canada, there is a regime in place that is similar to interest deductibility.

My question is one of confidence. How do people really accept the government's position that there will not be irreparable harm in terms of value added impacts on the Canadian economy for this particular initiative on interest deductibility when we see on the income trust front there has been huge harm done to people who have lost their savings?

In particular, how can there be confidence when I am looking at a T-205 form which indicates that there actually is an increase in the taxable income of a quarter of a per cent in spite of the pronouncements by the government that it has reduced taxes for those on incomes below $35,000? That is not a fact.

How can the Canadian public have confidence if this relatively small issue has such an aberration, if you will, in fiscal legerdemain when, on the larger front, there is reason to believe that there will be a huge impact on the Canadian economy in terms of shifts of capital and the ability for Canadian firms to compete in the global economy?

Business of SupplyGovernment Orders

11:15 a.m.

Conservative

Diane Ablonczy Conservative Calgary Nose Hill, AB

Mr. Speaker, I can advise the hon. member that all developed countries work to minimize tax avoidance. Some countries do it in one fashion and other countries do it in another fashion. International tax treaties and tax arrangements dovetail. Of course, there are always changes. Whereas one country might allow a deduction in one area, it might tax in another area. We have to look for a relative balance and parity in taxation measures between and among people active in the global marketplace. The member can be sure that we are working on that all the time.

With respect to the purported losses on income trusts, Jack Mintz of the Rotman School of Business said this year that the Liberals are creating market uncertainty by extending false hopes to investors. The Liberals need to take yes for an answer. We have dealt with it and they should support it.

The Globe and Mail said that Toronto Dominion Bank data comparing the selling prices of 16 trusts now in play to their value before the tax was imposed basically say that firms are offering to buy our trusts for an average premium of about 30% above the prices the trusts were trading at before the tax announcement.

Time does not permit me to read the other commentary on this, but I would be happy to show my hon. friend. The bottom line is that this has not caused huge harm to the vast majority of investors. In fact, some of them will actually make money from these new arrangements.

We need to be fair and balanced when we address these issues. I urge the Liberals to do so.

Business of SupplyGovernment Orders

11:20 a.m.

Conservative

Dean Del Mastro Conservative Peterborough, ON

Mr. Speaker, I would like to preface my comments by saying that I also heard the comments from the Liberal member directed at the NDP member from Winnipeg and found them to be exceptionally disrespectful and really uncalled for. They have no place in the House.

The Liberal finance critic, the member for Markham—Unionville, said that the government's policy is stupid. I would like her to comment on his comment that he made on Bay Street a couple of weeks ago when he said that we support the agriculture industry, that we subsidize farmers, so why should we not subsidize corporations, why should we not be doing this.

The other day the hon. member for Markham—Unionville saw that the Canada Revenue Agency gave a specific example of double-dipping where it went to court with a Canadian corporation and lost because this tax loophole exists.

Does the hon. parliamentary secretary think that comparing double-dipping to subsidizing agriculture in this country, an industry that was decimated under the Liberal government, indicates that that member has any understanding of the problem whatsoever?

Business of SupplyGovernment Orders

11:20 a.m.

Conservative

Diane Ablonczy Conservative Calgary Nose Hill, AB

Mr. Speaker, if I may, I would also like give a kind word to my hon. friend from the NDP. She and I do not agree on things a lot of the time, but I always find her very good to work with and a very fine finance critic, very experienced and very knowledgeable. So, I too regret that we are getting into personal aspersions.

The fact of the matter is that every tax system has a series of supports for various sectors of the economy. These are good and useful, and helpful things to ensure that various sectors, various businesses, can succeed in the whole scheme of the global economy.

As I was answering the previous question, there are always arrangements which allow us, in this context of global competition and competitiveness, to succeed. But that is not to say that we should not ensure that these series of arrangements of subsidies, of tax breaks, are fair and balanced.

When we see two committees of this House plus the Auditor General, plus a special panel, and other experts saying that a particular tax loophole is unfair, we are going to address that. I think Canadians appreciate that we have the courage to rebalance the system where it needs to be but continue to lower taxes for everyone.

Business of SupplyGovernment Orders

May 10th, 2007 / 11:20 a.m.

Bloc

Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

Mr. Speaker, the Liberal party has chosen to introduce an opposition motion today that raises a good number of points for which we are far from having ideal solutions. Having said that, this motion demonstrates how the approach of the Conservatives lacks attention to detail. They have not really found a way to solve the problems. However, the motion offers solutions that I find inadequate. Therefore, the Bloc Québécois will vote against this motion, as it is presented.

The government has not properly dealt with some problems. For example, GST rebates for tourists comes to mind.

An announcement was made but it was recognized, after the fact, that there were problems in terms of organized tours, as well as outfitters and duty-free shops. They have corrected part of that, but not everything has been settled. Since there was some improvisation, the result was that major changes had to be made later.

It is the same for income trusts, except that it is even more serious.

During the election campaign, the government said that it did not want to change the rules of the game.

Some of my fellow Quebecers, who are not necessarily supporters of the Bloc Québécois, have told me that they put their savings into these entities. They thought that the rules of the game were clear, but they were changed without notice. They want to know whether a solution can be found to this problem.

We have listened to them. We have to abide by the principle that companies and trusts pay their share of income tax. On the other hand, is there no solution that would counteract the negative effects this is having, particularly for individual investors? We have to put a little more thought into finding a solution. This is another example of the government’s ad hocery.

On the question of deductibility, that remains to be seen, because the bill that will allow this part of the budget to be implemented has to be tabled first. Everyone has to know the rules of the game.

Next Monday, it seems, the Minister of Finance will make a speech to clarify the situation. However, it is obvious that the government has been very inept, and has more or less thrown the baby out with the bathwater. It sent a very ambiguous message: that the interest will no longer be deductible when investments are made for the good of our economy, even though a number of countries in the world apply that rule. On the other hand, not enough attention was drawn to the fact that this was going to eliminate tax avoidance. More work will be needed on that subject.

The Liberals have introduced a very partisan motion. When considering economic issues like these, it is a little dangerous to try to go too fast. Strangely, they seem to be reacting that way because the Conservatives went too fast themselves.

On the question of interest non-deductibility, in order to do the job, the measure must obviously target only the abuse, very precisely. We must ensure that we achieve that result. It will not be easy, because these are very complex questions. It would be wise to think about it very carefully.

The Liberal critic is talking about a working group to discuss it, and the Minister talked about the need to fine-tune things. Maybe they could get together.

It is important that a clear and moderate message be sent to the economic community and the public as a whole. I think we could agree on that.

The government says that it wants to tackle tax havens. In fact, the Standing Committee on Finance is meeting to consider the questions raised in a motion by the Bloc Québécois. The ultimate tax haven, the one the government should be taking on, is Barbados. Canadian companies that invest money there, knowing that the interest rate there is very low, can bring those profits back here without being taxed. That is not the general rule in tax treaties. Ordinarily, they provide that when money is invested in another country, it is taxed when it returns to Canada, if the two tax systems are not equivalent. But under the Liberal government, a little paragraph was added—in section 5907—exempting that money from taxation, with the result, according to the Auditor General’s 1990 estimates and the extrapolation by Statistics Canada, that this income amounts to $4 billion annually. It comes in from Barbados and it is not taxed.

I believe, at a rough estimate, that we end up losing some $800 million in income tax revenues. Obviously this money that businesses do not pay—because they take advantage of this tax haven—is money that others pay, middle class people and all taxpayers who do their part. This also means less money that could be allocated in part to social programs. On one hand there are companies that can bring home profits without being taxed, and on the other there are people who are paying too much in taxes because of this.

That is a considerable amount of money. There is a way of settling this problem, namely by quite simply getting rid of section 5907. This very concrete and practical measure could be implemented. It would immediately have a very significant effect and it would send the following message to all taxpayers: we are trying to make the situation a bit fairer; we do not tolerate this sort of situation. This is a tax loophole with the ability to disappear clearly and neatly, if the practical solution is applied. However, as far as interest deductibility is concerned, it is not easy to know what the solution is.

So there is a problem. The Liberals are dealing with it in one way in the motion, but in our opinion a lot of things are getting all mixed up at once. This issue is being associated with the fact that there are a lot of foreign takeovers of companies. This may be one element, a variable that is taken into account, but it is also the result of several years of operation in Canada, during which people were told that this is a free market and we would see, in the end, whether we were winners.

A detailed analysis of this question is needed. It is true that many Canadian companies are buying foreign companies. The net result, though, even if there are more that buy foreign companies, as far as the size of investments goes, we are clearly in the red. This matter must be examined. The solutions, however, are systemic, and a much broader policy will be needed than the one found in the motion we are discussing today.

The first aspect in the motion is the issue of non-deductibility. The second aspect is the issue of trusts.

There is a big problem with income trusts because people have to pay their taxes. It became clear that the mechanism that was created for a certain kind of capital was being used by companies in sectors that clearly did not need it. A trend was developing, especially in telecommunications. It became a way to get a tax break without producing wealth.

I think that the underlying principle was unacceptable. That being said, the way they did it was also unacceptable because they pulled the rug out from under investors without warning after having told them that the rules of the game would not change. People who had saved up $50,000 or $100,000 or $200,000—their life savings or at least a substantial portion thereof—were deprived of income that, in many cases, they had worked for their whole lives. I can well understand why people who have been affected by this issue are angry.

So how should we react to the Liberals' motion? Apparently, according to the Liberals' proposal for income trusts, people should be taxed according to the alternative solution the Liberals proposed, which was summarized in the 14th report of the Standing Committee on Finance.

Let us not forget that this report was the product of a consensus indicating that solutions had to be examined. The Bloc Québécois proposed a simple solution: extending the moratorium, the transfer period, from four to 10 years. The Liberals suggested another proposal that we consider unacceptable. As such, that part of the Liberals' motion is totally unacceptable to the Bloc Québécois because they are trying, in a roundabout way, to make it all non-taxable. I think that that aspect of the motion has no future.

The bottom line is that there is now a perception among electors and the general population that some people are more equal than others when it comes to taxation. Because of the complexity of the systems, because of what has been developed over the years, because of the expertise that some companies may have access to, there are some people who maximize their tax benefits, to the limit and to the extreme. Hence the reaction of wanting to do away with the tax advantage.

We must take the time to think and look at how these things are determined to ensure that at the end of the day, the reaction is sensible and rational. Sometimes, the possibility of tax savings should be available, because it has positive impacts on the economy. But we must find ways to stop abuse from happening.

The Liberal motion also refers to the fact that the government's two measures are the cause of foreign takeovers. I do not think that a direct causal link can be made in this way, but the fact remains that we must address the phenomenon of foreign takeovers of Canadian and Quebec companies.

In Quebec, we are obviously now carefully assessing what the impact of Alcoa's takeover of Alcan would be. All the consequences of such a takeover must be reviewed, because based on the information I have seen, this transaction would mean that 37% of all of this new giant's aluminum production would come from Quebec.

Are there not in fact benefits to be gained from this kind of transaction? We must have a closer look at this and ensure that the existing legal mechanisms concerning foreign investment review are fully utilized. In that respect, we must ensure that our legislation is consistent with the new, current economic reality of globalization. Ultimately, when a transaction is being assessed for its relevance to the Canadian economy, important social factors must also be considered, such as the impact on employment in certain regions, for instance, and the repercussions of such a transaction on older workers. Not only will this serve to correct some purely economic aspects, but it will also take into account other types of impact we can expect to see.

This motion is a bit of a hodgepodge of a number of conditions. In my opinion, its current wording is a little outdated, considering our current reality. On one hand, with respect to interest deductibility, the minister announced that he will make a statement next Monday that will make his position clear. On the other hand, yesterday, the day before the debate on this motion, the Liberal finance critic himself suggested that an expert panel should examine this issue.

Perhaps we need to head more in this direction, in order to ensure that the Standing Committee on Finance, which is currently working on these issues, can complete its work, reach some conclusions and make some recommendations, especially since we can sense the government's desire to achieve some real results and outcomes. I thank the government for its support of the Bloc Québécois motion to study the issue of tax havens. This proves that they want to have a closer look at these issues. However, we must be prepared to study all situations. Certain aspects have to do with interest deductibility. There is also the matter of the treaty with Barbados, which, in my view, is a key factor.

I hope that the Standing Committee on Finance can produce a report on which there is as much agreement as possible, with recommendations that will have an impact as soon as possible. Maybe we can set as our deadline the fall economic statement or, at the latest, next year's budget. Clearly, if the work of the Standing Committee on Finance should result in a recommendation to abolish section 5907, which enables companies to bring $4 billion in profits from Barbados back to Canada without paying taxes, that would send a message to Canadians that their elected representatives have identified a fundamental inequity that must be corrected. I think that would be a key recommendation.

In my opinion, the committee should take a thorough look at interest deductibility. This week, we met with experts from the Canada Revenue Agency, who are very cautious about these and other issues.

It is not easy to get figures. The government needs to be more transparent.

The message that should be sent to people at the finance department or the revenue agency or to other government experts is that we need information in order to make the right recommendations.

We need to stop playing hide and seek with money, or else we will encourage the current perception that there can be inequity in the tax system, but it cannot be addressed because it is protected by people behind the scenes.

We have a wonderful opportunity to move forward and correct this situation in the Standing Committee on Finance. Personally, I hope that this will be the best way of ensuring that, at the end of the day, we can make recommendations to address these issues.

Regarding income trusts, Bill C-52 is already before us. The budget has been adopted and now must be implemented. What we must do is keep listening.

We have to listen to people who have suffered serious losses, those in a position to provide arguments on this issue. Maybe we should hold a debate in the fall, and, in a future budget, determine what is feasible. Nonetheless, we must always respect the principle of tax fairness and strive to make changes that will improve the situation, allow more fairness in taxation and take into account any potential impact on the economy.

We can learn from this motion and keep the following in mind. When the government makes announcements on economic investments—primarily in the budget and on other occasions—it should make sure that it has considered every possibility and not present half-baked initiatives. Otherwise, we are sending economic stakeholders a mixed message. That is what the government has to be aware of now in the matter of deductibility of interest expenses. There needs to be a clearer message.

Consider the example I gave on the GST rebate for tourists. Again, there is still some work to complete. Often it is not just a matter of small details, but things that have a major economic impact. These days, we must always consider the big picture in the context of globalization.

Like everyone else, the representatives of the multinationals in Canada—whose head office may be in the United States or elsewhere—are well aware of the conditions on investments. We should not have to kneel down to these companies. We should make sure the representatives from Quebec or Canada within these multinationals have what they need to get authority from their head offices in order to capitalize on factors that would attract the companies and create the right conditions to move forward.

We thought the Conservative government would have been particularly sensitive about the importance of these issues, but we are seeing the opposite and it is quite surprising. The government, which says it defends business interests, has introduced a number of initiatives that lack polish, that need fine tuning, especially on aspects that could have been planned or have already been studied. These initiatives could have been introduced and implemented in a very clear manner.

I am not saying that decisions can always be made that work for everyone. Sometimes we must make decisions even if some people will be penalized. However, in the end, the criteria to be considered are transparency and respect for what has been proposed. If ever there is a need to reverse a decision or way of doing things because a party, having come into power, realizes that it was mistaken, then a way must be found to penalize the fewest possible people.

Promises made during an election campaign—such as the one pertaining to income trusts—are in some ways moral commitments, contracts entered into with the voter. In this case, the Conservatives have broken this moral contract. Therefore, we are right to bring forward our proposals. However, the way in which the Liberal Party is proposing to move forward in this motion, today, is unacceptable. With regard to the proposed solutions, the motion does not reflect comments made about interest deductibility. With regard to income trusts, it is even worse, because the proposal does not resolve the basic issue of the need for tax equity.

Business of SupplyGovernment Orders

11:40 a.m.

Liberal

Paul Szabo Liberal Mississauga South, ON

Mr. Speaker, in this debate it is important to look at some of the facts and I would comment that just earlier today there was an interesting fact given apparently by the member for Winnipeg North where she said that the Liberal Party over the last 13 years received $280,000 in donations from CAITI, the Canadian Association of Income Trust Investors. That organization did not even come into existence until January 2007. I believe there is a problem here.

I would like to ask the member who spoke most recently a question, since the Bloc has announced that it is not going to be supporting the motion, which in fact deals with abuses but also promotes tax fairness. Is he aware that $7.5 billion of tax revenue is lost to the Government of Canada, $6 billion of that due to the private equity takeout of income trusts, income trusts that have been bought at fire sale prices since this terrible punitive tax was announced on October 31, 2006, and a further $1.5 billion of revenue with regard to the privately urged buyout of Bell and Telus?

Tax fairness means that we have to have a system which ensures that Canadians continue to have the support of the tax revenues from Canadian business and industry. However, when we have these private equity buyouts, and they are structured in a way where Canada gets zero, that is why we have lost $7.5 billion a year projected. That is compared to the so-called tax leakage of the finance minister over six years of only $5 billion. It makes no sense. Why is the Bloc not supporting the motion?